The owners of BIN Bank now have control over Russia’s rocket electronics producing monopoly, Energia. This is the first foray of big capital into the Russian space industry.

Six months ago, a fight broke out over one of the biggest companies in Voronezh Province, Energia, which makes the electronics that go into all of Russia’s space equipment. The head of Energia, Vladimir Popov, came up against an alliance of banks, the Interbank Investment Group (Rus. MIG) and the Eurasian Investment Company. Just a few days ago, the Moscow financiers won and ended up with more than 75% of Energia’s stock, breaking Energia’s resistance.
Eurasia Investments’ Vice-president, Natalia Burnusova, was appointed interim president of Energia. In an interview with Expert, Burnusova described the situation at the company as extremely difficult: “All the company’s working assets have been carted off. Before the new team of executives came to the factory, the former director conducted a variety of operations to expropriate some of the company’s fixed capital,” Burnusova stated. “We are conducting an audit immediately and trying to determine how much was lost, however it is already clear that we will not be able to get everything back.” The new head of Energia, on the other hand, avoided judging her predecessor. She said that would be the job of the authorities who have opened several criminal investigations into the actions of Energia’s former directors.
Vladimir Popov led Energia for almost fifteen years. Under his direction, the Voronezh company was one of the first in the early 90s to begin conversion from military to civilian production. This was a much-needed step. The company was on the verge of collapse. The Soviet program to create reusable Energia-Buran rockets, for which the company developed and manufactured turbo-generator power sources, was cut. Military orders also declined. Instead of making electric engines for rockets and satellites, Energia began to make an entire range of consumer products, from juicers, blow dryers, and electrical equipment for Stinol fridges to the unique medical equipment used in heart surgeries and in mechanical hearts. Nonetheless, as Popov wrote this May in an open letter to Vladimir Kulakov, the governor of Voronezh Province, “the military conversion has gone out of control.”

The subsidiary scheme

Early this year, the debt on Energia and its subsidiaries’ books and extra-budgetary accounts exceeded 300 million rubles. In August 2002, the Voronezh provincial administration requested that the Federal Financial Recovery Service (Rus. FSFO) begin bankruptcy proceedings, but this ended in fiasco. As Voronezh Province Vice-governor Vyacheslav Kleimenov informed us, investigators discovered the Popov had created a unique system for evading taxes and creditors. Energia had founded an independent company with minimal fixed capital for almost all its divisions. These subsidiaries rented property from Energia and remained in operation until they had accumulated huge debts in taxes, electricity, and utilities. Creditors began bankruptcy proceedings against these subsidiaries. However, as the bankruptcy procedure started, Energia would manage to rid itself of ownership and escape punishment. After the subsidiaries were liquidated, new companies would appear to take the place of the bankrupt ones, with new names but the same function.
According to Nikolai Schipelev, Deputy Head of the Voronezh Province Office of Manufacturing , Energia’s managers founded more than 200 subsidiaries. The provincial administration is convinced that Popov founded these companies not only to avoid paying taxes, but also to get rich. A complex investigation of the company conducted by the state prosecutor and tax agencies at the end of 2002 showed that around ten criminal cases had been brought against Energia management for exceeding their authority and acquiring property illegally, and for excessive spending. At the moment these cases are being pursued by the prosecutor of the Lenin Region of Voronezh Province. The prosecutor’s office decline to comment on the details of the cases, claiming these were confidential. We did succeed, however, in finding something out. Schipelev told Expert that Energia’s previous directors were actively involved in real estate deals that took several buildings and facilities in the middle of Voronezh away from the company. None of the earnings from the sale of this real estate ever made it back to Energia.
In late June, a special commission was sent by the federal government to Energia. The commission was under the direction of Alexander Brindikov, the First Deputy Minister of Industry, Science, and Technology, and included representatives from the Ministry of Defense, Ministry of State Property, and the FSFO. The commission’s findings were far from pleasant for Popov. In order to stabilize the company’s finances, the working group recommended Energia find a strategic investor and sell its controlling stake. However, Popov refused. Instead, the former managers of Energia tried to get Duma deputies on their side, sending out letters begging them not to let such a strategically important defense company fall into private hands. But it was too late. At the end of August, MIG and Eurasian Investments got enough shares to have a controlling stake and decided to change the company’s managers.

Energia behind the wheel

The Moscow bankers say they were interested in Energia due to its strong market potential and the good outlook for the industry as a whole. Currently Energia is implementing a range of promising electric machine tool and space projects, the most important of which is electric power steering for the next generation of Russian cars. Last year, Energia produced the pilot lot of the new power steering wheels. Vice-president of MIG, Sergei Shindin, told Expert that after the audit, the partners put together a business plan to get the company out of crisis and decided on the amount of production and investment in production. According to Shindin, setting up mass power steering production alone will cost around $10 million. AvtoVAZ has already announced it is ready to buy these parts for its cars. These units cost $400 each and AvtoVAZ plans to make 200,000 Kalin cars starting next year. This means AvtoVAZ’s order could bring Energia up to $80 million a year. Shindin also noted that in addition to AvtoVAZ the company intends to become a parts supplier to the Ford plant in Vsevolozhsk, which according to the conditions of Ford’s agreement with the Russian government will have to buy at least half of all its parts in Russia in two years.
The future of the company’s main product, electrical systems for new space projects, looks less bright. At the moment the Khrunichev State Center for Astronautical Research and Production has only produced one Yalta system satellite, Monitor-E, which will be launched late this year or early next year. If Rosaviakosmos funds the creation of a new set of Russian satellites for distance mapping of the Earth, the Khrunichev Center along with Energia will get an order for six units and at least $10 million. But that is in the distant future.

Electromechanical monopoly

The Energia purchase was just the beginning of the MIG and Eurasian Investments expansion into the machine tool industry, where the two companies will now coordinate their efforts. As Shindin told Expert, investment in Russian electromechanical manufacturing only recently became a business priority for his company. “We already have the Podolsk Electromechanical Factory and Eurasian Investments has two electromechanical companies in Penza and Kaluga Provinces,” say Shindin. “We plan to unite our assets to become the major force in the industry and the main supplier of electromechanical parts to Russian car factories and producers of household appliances.”
Vice-President of BIN Bank, Camilla Spence, notes that to attain this goal Eurasian’s shareholders will buy two more electromechanical factories in the near future.

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